Clear signals: further guidance on rent valuations for telecom sites

A spate of rulings have further shaped rent valuations under the Code and the 1954 Act for telecom sites, write Alicia Foo, Pierre Smith and Colin Cottage. Negotiations between telecoms operators and landowners over the rent levels to set in agreements governing rights to install, maintain and operate telecoms equipment on property in the UK will be better informed by four recent rulings. Emphasised by the rulings is the different approach to calculating rent valuations for agreements governed by the Electronic Communications Code 2017 and for renewal of agreements under the Landlord and Tenant Act 1954, something that looks set to lead to continued bifurcation in relation to valuation in the market until the Product Security and Telecommunications Infrastructure Bill becomes law and brings alignment. Valuations under the 2017 Code Three of the four recent rulings issued by the Upper Tribunal (Lands Chamber) concerned disputes over rental value for telecommunication sites under the 2017 Code. The disputes arose in the following cases: EE Ltd and another v Affinity Water Ltd [2022] UKUT 8 (LC); [2022] EGLR 10 (the Affinity Water ruling) On Tower UK Ltd v AP Wireless II (UK) Ltd [2022] UKUT 152 (LC); [2022] PLSCS 133 (the Audley House ruling) EE Ltd and another v Stephenson and another [2022] UKUT 180 (LC); [2022] PLSCS 114 (the Pendown Farm ruling). The UT has the power to set 2017 Code agreements where telecoms operators and landowners cannot agree the terms between them. In performing this role, it had become increasingly common for the tribunal proceedings to be burdened by volumes of evidence presented in relation to comparable lettings.  The recent rulings, however, confirm the shift away from the comparable method of value assessment to the so-called Hanover approach instead (Vodafone Ltd v Hanover Capital Ltd [2020] EW Misc 13 CC; [2020] EGLR 35). The rulings take three stages of the six-stage value assessment, with parties first identifying the alternative use value of the land followed by the value of the additional benefits and then additional burdens which arise from the grant of the Code agreement over and above those arising from the alternative use identified. The comparable method was described in the Affinity Water ruling as having “obvious dangers” as the hypothetical market, in which Code agreements are assumed to be granted for something other than the provision or use of an electronic communications network, does not exist in reality. In the Pendown Farm ruling, Judge Martin Rodger QC said parties should avoid preparing such evidence in the future, describing them as being of “no assistance”. The UT has left room for comparable assessment to be applied at stage one of the Hanover approach where the parties seek to cite transactions supporting the alternative use value. However, in practice there is often no, or no significantly more valuable, alternative use to warrant the introduction of evidence on the scale we have been familiar with to date.  The UT’s clear expectation now is that its valuation decisions set parameters within which telecoms operators and landowners should be able to reach agreement in future cases, without the need for a detailed Hanover assessment. This was clear from the Audley House ruling, where the experts were directed on the first day of trial to attempt to reach agreement having regard to what was said in the Affinity Water ruling, which they did. In that case, the judge expressed doubt that valuation evidence would be needed at all in the future – in our experience, this is already playing out in practice.  The UT is making it clear that valuers should undertake their valuations having regard to its previous valuations. This has led to suggestions that the UT effectively wants to apply a tariff, and it certainly seems that any valuer appearing before the UT with a valuation that is inconsistent with the Affinity Water table is likely to get short shrift. Valuation under the 1954 Act The 2017 Code enhanced the rights of telecoms operators to install, maintain and operate telecoms equipment on land owned by others. It also curbed the ability of landowners to set premium rent rates because it makes specific provision that any increase or decrease in the value of land attributable to the purpose for which it has been used should be disregarded.  There is no equivalent disregard provision for 1954 Act agreements that predate the 2017 Code. This has a bearing on valuations in respect of 1954 Act renewals – a fact highlighted by the County Court’s recent decision in On Tower UK Ltd v AP Wireless (II) UK Ltd [2022] PLSCS 146 (the New Zealand Farm ruling). For 1954 Act cases, the UT has recently shifted away from favouring the Hanover approach to valuation, citing the fact that there is now sufficient information in the market, post the 2017 Code taking effect, to support a more traditional comparable assessment. In the New Zealand Farm ruling involving a rural site, the county court has confirmed that the analysis of comparables should not just be the rents agreed for telecoms sites but also take account of the rental value of any capital payments made, either as premiums or as compensation payments.  Other findings were more favourable for operators. The court ruled it is not to be assumed that other sites, against which rent levels are hypothetically matched, are offered in the open market, where the value is typically higher. The court also appeared to reject the notion that hypothetical competition from operators seeking to address “not spots” in their network would drive up rent prices for vacant sites. While it is clear that the county court will ultimately look at the evidence and the level of rents being agreed in the market, it too favours a fairly broad-brush approach to landing at an appropriate valuation. The courts appear to have arrived at the view that a 1954 Act case for a rural telecoms site would normally involve a negotiation in the range of £2,000 to £3,000 per annum, and rents would normally be expected to fall in that range. There might be some minor variation around this general trend if there were special circumstances. In Hanover, a rent of £5,750 per annum was determined for a telecoms site in a car park with a greater than nominal alternative use value. As there have been no 1954 Act cases involving rooftop sites, the courts’ view on these remains unclear. Alicia Foo is a partner and Pierre Smith an associate at Pinsent Masons LLP and Colin Cottage MRICS is managing director, compensation at Ardent Management Photo © Dimitris Legakis/Shutterstock